My understanding is if bond yields increase it creates demand for a currency. But that means bonds are being sold if yields are increasing? So if bonds are being sold and not bought, thus not creating demand for a currency, why do currencies have a positive correlation with bond yields?
Can you see why I’m struggling? Sorry if stupid question.
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Think of it this way: If something costs more, people want to buy it less. If bond yields go up, it means borrowing money is more expensive so people don’t want to borrow and borrow more. Instead, they prefer to buy and hold a currency instead, which increases demand for the currency and can cause its value to increase.
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